Power Hour: USDA Delivers a Grain Stocks Surprise

U.S. grain stocks are higher than expected on the heels of widespread, summer long drought that devastated crops throughout the Midwest, according to a March 28 USDA report.

The Grain Stocks report, issued quarterly by the USDA's National Agricultural Statistics Service, said U.S. corn stocks are as much as 370 million bushels higher than markets had anticipated and that soybean stocks are as much as 50 million bushels higher - news that sent corn and soybean prices falling.

"The perception was that inventories were extremely short because of drought and that we would struggle to have enough corn and soybeans to make it through the summer," said Chris Hurt, Purdue Extension agricultural economist. "When you're expecting 632 million bushels of corn, an additional 370 million bushels is substantial."

The report is derived from farmer surveys and commercial grain handler responses. Because of the level of inaccuracy associated with survey data, Hurt said commodities traders are likely to keep a close eye on grain availability.

"The markets will be looking at other factors in the coming days and watching to see if more corn becomes available in the marketplace," he said. "Right now we are seeing strong basis levels, and that indicates there's still a shortage."

The USDA also released its annual Prospective Plantings report, which includes survey data from farmers nationwide to gauge their crop-planting intentions.

Nationally, corn growers indicated they would plant an estimated 97.3 million corn acres, up just slightly from last year's 97.2 million acres. Soybean growers expected to plant about 77.1 million acres, down slightly from the 77.2 million acres they planted in 2012.

Hurt said the numbers weren't surprising and that farmers weren't likely to increase corn production, in large part because corn price incentives aren't high enough to justify the agronomic risks.

"Corn does have a slight premium over soybeans, but our farms already do a lot of corn," he said. "Growing more corn would mean more continuous corn, which has a lot of risks. Most growers are sticking to their corn-soybean rotations."

Also causing corn acres to level off are the slowdown in ethanol demand and China's growing soybean demand, Hurt said.

Indiana and Ohio farmers indicated they would closely mirror the national trend. Indiana farmers plan to plant 6.1 million corn acres this spring - a 2% decrease compared with last year. Ohio growers plan to plant 3.95 million acres, up 1% from 2012.

Indiana soybean growers said they would plant 5.1 million acres of soybeans, down 1% from 2012. Ohio growers intended to plant 4.65 million acres, up 1%.

Higher wheat acres in both states gave little room for corn or soybean acres to expand. Indiana's wheat acreage is up 34% over last year and Ohio's is up 26%.